Mortgage rates are now the lowest they have been since the 1950s.

Unfortunately, the low rates also come at a time when unemployment is high and credit scores are low.

The average rate for a 30-year fixed loan fell to 4.69 percent last week; rates for 15- and 5-year mortgages also hit record lows.

Realtors are hoping the new low rates goose the market like the homeowner tax credit did earlier this year, but analysts are not giving them much reason for hope:

“As long as prospective homebuyers are still concerned about their jobs and financial well-being, many will be reluctant to take the plunge, even though affordability has never been better,” said Greg McBride, senior financial analyst with Bankrate.com.

Rates have fallen over the past two months as investors have become nervous about Europe’s debt crisis and the global economy and have shifted money into safe Treasury bonds. The demand has caused Treasury yields to fall. Mortgage rates track those yields.

While mortgages are getting cheaper, low interest rates hurt Americans who are trying to save. Puny rates for savings accounts and CDs are especially hard on people who are living on fixed incomes and earning next to nothing on their money.

Americans normally rush to refinance when rates plummet. But refinancing activity now amounts to less than half the level of early 2009, when long-term rates hovered around 5 percent, according to the Mortgage Bankers Association.

Read the entire article from the San Francisco Chronicle here.

Last week the Treasury Department approved proposals from California, Arizona, Florida, Nevada and Michigan to help distressed lenders who don’t qualify for mortgage modifications and released $1.5 billion in funds to those states of the $2.1 billion set aside by the Obama administration earlier this year.

The California Housing Finance Agency got $700 million for its plan, which is expected to be put into effect by November 1.

California’s plan includes three mortgage assistance programs as well as a moving assistance service for borrowers who have exhausted every option to stay in their homes. Mortgage assistance initiatives include making temporary monthly mortgage payments for qualified borrowers, providing funds to help borrowers pay their arrears and reductions in loan principal to help underwater borrowers.

Total aid is capped at $50,000 per household; the ceiling on monthly mortgage help is $1,500. CalHFA officials say they hope to help up to 40,000 homeowners with the new program.

Fannie Mae made an announcement last week that borrowers who walk away from their mortgages – the strategic defaulters – will be unable to secure a Fannie Mae mortgage for seven years following the foreclosure.

And in the states that allow deficiency judgments, Fannie said they’d be taking legal action against those borrowers in an effort to recoup mortgage debt.

Fannie says it is instructing all its mortgage loan servicers to monitor delinquent loans on the verge of foreclosure and recommend cases for Fannie to pursue for deficiency judgments.

An EVP at Fannie said that the agency is taking these steps to “urge” borrowers to work with servicers. (If that’s an urge, we’d hate to see a push.)

Are they going to do the same thing on Commercial Property?

Oh, that’s right – they can’t!

The latest quarterly report from the UCLA Anderson Forecast says that the California economic recovery is expected to lag the nation in 2010 but will ramp up in 2011 and beyond.

From the report:

UCLA Anderson Senior Economist Jerry Nickelsburg says the state “will grow slower than the U.S. and a slow recovery in jobs will leave unemployment at 12.1% for the year. The latter part of our forecast (through 2012) calls for health care, professional and business services, exports, construction and technology-related manufacturing sectors to generate a bit more robust growth in California.” However, Nickelsburg notes, though the state will grow more rapidly in the following two years, job creation will not be fast enough to push the unemployment rate below double digits until 2012. “Unlike other deep recessions, the rapidity of the recovery, at least on the unemployment front, will be muted,” Nickelsburg writes.

The forecast for the next three years is slightly weaker than suggested in the March report. Slow growth in 2010 is expected as government and construction continue to restructure and a reticent consumer nationwide does not boost imports to levels that would ignite the logistics industry. Specific to the construction sector, Nickelsburg describes a divided state, as coastal California recovers while inland California, devastated by the collapse of the real estate market continues to languish.

A credit rating agency says that between 65%-75% of HAMP loans are likely to go bad as borrowers continue to struggle with increasing debt.

The Fitch Ratings report said that on average, HAMP-modified borrowers have 64% of their monthly pretax income already committed to existing debt, and have no cash reserves to deal with an unforeseen emergency or expense.

When the borrowers default again, lenders often offer them foreclosure alternatives like a short sale rather than a second loan modification.

From an article at CNNMoney.com:

Currently, according to the Fitch report, about half of prime borrowers who lose their homes now do so through foreclosure.

The other 50% go through short sales, in which they sell their homes for less than what they owe the bank, or deed-in-lieu, a transaction where the bank takes back the property directly and forgives the outstanding balance.

The servicers have been encouraged to rev up their short sale engines by the Treasury Department, which runs HAMP and its sister program, Home Affordable Foreclosure Alternatives (HAFA), which provides cash incentives to the parties who agree to short sales..

Now, when borrowers re-default on HAMP mods or other bank workouts, banks are much more likely to offer help to execute a short sale or deed-in-lieu.

“HAFA gave the servicers an indication that this is where they should take these [re-defaulting loans],” said Pendley. “The banks are now assisting borrowers; they’re being much more proactive, like helping them find real estate brokers for short sales.”

The benefit of these transactions for borrowers is that it lets them move on more quickly with their lives. They can get out from under the unaffordable mortgage payments, find a cheaper rental, start to, perhaps, save a little cash and start to rebuild their credit scores.

Attorney General Eric Holder, FBI Director Robert Mueller and HUD Inspector General Kenneth Donohue held a news conference on June 17 to announce that the agencies’ three-month “Operation Stolen Dreams” sting has already netted 485 arrests for mortgage fraud nationwide.

They also said that mortgage fraud has resulted in losses of about $2.3 billion to date. More arrests are expected as the FBI pursues more than 3,000 mortgage fraud claims.

According to the FBI’s Mortgage Fraud Report, the most prevalent schemes include:

Loan Origination Schemes

Loan origination fraud schemes involve falsifying a borrower’s financial information—such as income, assets, liabilities, employment, rent, and occupancy status—to qualify the buyer, who otherwise would be ineligible, for a mortgage loan. This is done by supplying fictitious bank statements, W-2 forms, and tax return documents to the borrower’s favor. Perpetrators also employ the use of stolen identities. Specific schemes used to falsify information include asset rental, backwards application, and credit enhancement schemes.

Foreclosure Rescue Schemes—The Use of Bankruptcy Petitions

The use of bankruptcy petitions to stall the foreclosure process continues to be a prevalent threat to delinquent homeowners looking for assistance.⁴⁷ Mortgage fraud perpetrators are exploiting the U.S. bankruptcy system by filing fraudulent bankruptcy petitions to delay the foreclosure process and extract the maximum profit from victims during the commission of advance fee, fractional transfer, and sale-leaseback-repurchase foreclosure rescue schemes. This type of fraudulent activity is increasing as perpetrators seize opportunities created by the current housing crisis and the more than 2.1 million properties in foreclosure.

Flopping, Short Sales, and Broker Price Opinions

Perpetrators are conducting short sale property flipping schemes using distressed properties of homeowners who are unemployed or facing foreclosure. The perpetrators collude with appraisers or real estate agents to undervalue the property using an appraisal or a broker price opinion to further manipulate the price down (the flop) to increase their profit margin when they later flip the property.⁶⁸ They negotiate a short sale with the bank or lender, purchase the property at the reduced price and flip it to a pre-selected buyer at a much higher price.

Commercial Real Estate Loan Fraud

Open sources and FBI analysis indicate that the $6.4 trillion commercial real estate (CRE) market is experiencing a high incidence of loan origination fraud similar to that seen during the last few years in the residential real estate market. Perpetrators, including loan officers, real estate developers, appraisers, and apartment management companies, are increasingly submitting fraudulent documents that misrepresent their assets and property values to qualify for loans to buy or retain property. When the loans are funded, the perpetrators often cease payment of their mortgages, resulting in foreclosure. According to open-source reporting, CRE loans are expected to produce more than $100 billion in losses by the end of 2010.

Preliminary analysis indicates that the commercial markets exhibiting the most significant signs of distress are in areas where there is also a significant mortgage fraud problem. These areas include the New York metropolitan area, Miami, Los Angeles and Orange County, Chicago, Boston, Dallas, Fort Worth, Houston, the District of Columbia, Atlanta, and Baltimore.

Pacific Investment Management Co. (Pimco) released their analysis of the commercial real estate market this week, saying that unemployment and property price uncertainty will continue to put a damper on recovery.

A Wall Street Journal article outlined the key findings:

–Capital has returned to commercial real estate. “But optimism should be tempered, because national price indices are misleading when transactions are limited and fail to reflect the significant uncertainty around property valuations,” the report said.

–The transfer of commercial real estate risk out of the banking system may take longer than previous cycles, and as a result, prices won’t return to 2007 levels only toward the end of this decade.

–Macroeconomic factors such as unemployment will affect the outlook for rents, vacancies and capitalization rates.

Pimco suggests there are opportunities for patient investors as the deleveraging continues. Some of the options include dispositions of the assets of banks taken over by the Federal Deposit Insurance Corp., restructuring of large commercial loans and buying discounted subordinate positions in commercial mortgage-backed securities.

An article last week in the LATimes noted that while prices are not exactly climbing, investors are “on the prowl again” and bidding is brisk for desirable commercial properties.

The report noted that there is a lot of commercial real estate investment money on the sidelines awaiting bargains that just haven’t materialized because lenders have been extending loans.

When attractive buildings become available, bidders are showing up. The Wilshire-Bundy Plaza, a preeminent Brentwood office building, drew 40 bidders and fetched $111 million. One CRE broker called that “an incredible price”.

The article also noted:

If the commercial real estate market continues to gain strength it would represent a significant shift in economic risk because many experts had feared that mass defaults by landlords on their loans could cripple banks and drive the country deeper into recession.

“It’s true that thousands of commercial loans must be worked out and some of these properties will enter the market in 2010,” investment banker David Rifkind said. But “federal policy has been accommodating to banks and they are not being forced to realize losses.”

“There is so much money sitting on the sidelines that when distressed assets or even small pools of loans come to market, there is a flood” of interest, said Rifkind, managing partner of George Smith Partners.

“That became palpable to us in the first quarter,” he said. “Money can’t stay on the sidelines for long periods of time. It has to retool and be put to use.”

The real estate lobby has been petitioning Congress to extend the homebuyer tax credit closing deadline past June 30 because the program worked too well.

The last-minute rush of homebuyers in April caused a log jam at lenders and real estate service companies that is still not unclogged. The concern is that many of those buyers will head for the door if they miss the June 30 deadline.

NARs says up to 75,000 homebuyers are at risk of losing their tax credit if the deadline remains at June 30.

There is now a measure in the Senate to give buyers three more months – until Sept. 30 – to close on their April contracts. The measure is attached to a job-related bill currently in the Senate, which needs to be passed by Congress and signed by the president to become effective.

Last week the California Senate approved SB 1178, extending anti-deficiency protection to homeowners who refinanced their original mortgage loans and are now facing foreclosure.

SB 1178 now moves to the Assembly for approval.

From the C.A.R. press release:

“Currently, if a homeowner defaults on a mortgage used to purchase his or her home — known as a ‘purchase money mortgage’ — the homeowner’s liability on the mortgage is limited to the property itself,” said C.A.R. President Steve Goddard. “Unfortunately, the original law did not extend the purchase money protection to loans that refinance the original purchase debt, even if the refinance only was to obtain a lower interest rate. SB 1178 corrects this inequity and extends the same protections to consumers who refinance their home loans.

“Today’s vote was a victory for homeowners in California,” he said. “SB 1178 now moves to the Assembly for approval. C.A.R. is calling on our elected representatives to swiftly pass this much-needed legislation and send it to Gov. Schwarzenegger for signature.”